Inflation Targeting and Alternative Monetary Policy Approaches

This chapter starts with a review of the numerical inflation targetsnumerical inflation target which a number of OECD countries adopted in the first half of the 1990s. It then discusses the optimal rate of inflation and the significance of two per cent as an inflation target, together with the implications for inflation targeting and alternative monetary policy approaches of central banks’ errors in forecasting and analysis of root causes of financial and economic shocks. It also describes the author’s involvement in international efforts to establish and strengthen central bank independence.